TAM 1123029: Overpayment interest runs through the tentative refund date after a Service-initiated adjustment

Plain-English summary

This Technical Advice Memorandum addresses the ending date for interest on an overpayment created by a Service-initiated general adjustment after an NOL carryback and tentative refund were later disallowed. The IRS concluded that, on the stated facts, the overpayment was effectively refunded and interest under IRC § 6611 runs from the overpayment date through the date of the tentative refund, subject to administrative adjustments. It explained that the overpayment resulted from the general adjustment, not from the disallowed NOL carryback, so the rules for credited overpayments and NOL carrybacks did not control. The memorandum distinguished two cited cases because they involved overpayments credited to other tax liabilities.

Ruling snapshot

• Question: Does overpayment interest end on the tentative refund date or on the filing date for the year of the NOL carryback?
• Outcome: Advice given.
• Key authorities: IRC §§ 6611, 6621, 6151, 6513, 6402; Treas. Reg. §§ 301.6611-1 and 1.6151-1.

Full text (IRS public release)

                     INTERNAL REVENUE SERVICE
           NATIONAL OFFICE TECHNICAL ADVICE MEMORANDUM

                                         July 29, 2010

                                             Third Party Communication: None
                                             Date of Communication: Not Applicable

Number: 201123029
Release Date: 6/10/2011
Index (UIL) No.: 6611.00-00, 6611.04-00
CASE-MIS No.: TAM-108254-10

Director
Appeals, Area 7

  Taxpayer's Name:                           ------------------------------
  Taxpayer's Address:                        ----------------------------------
                                             --------------
                                              ------------------------------
  Taxpayer's Identification No.:             ----------------
  Year(s) Involved:                          -----------------------------
  Date of Conference:                        --------------------------

LEGEND:

Taxpayer = ------------------------------
TY1 = ------------------
TY2 = ------------------
TY3 = ------------------
Date 1 = ---------------------
Date 2 = -----------------------
Date 3 = ----------------------
Date 4 = ---------------------
Amount 1 = -----------------
Amount 2 = ---------------
Amount 3 = ---------------
Amount 4 = -----------------
Amount 5 = -------------
Amount 6 = -----------

ISSUE:

Whether in allowing interest under section 6611 on an overpayment of tax that resulted
from a Service-initiated general adjustment that was preceded by a net operating loss
TAM-108254-10 2

(NOL) carryback and tentative refund that the Service later disallowed, the interest
period ends on the date of the tentative refund or on the filing date of the tax return for
the year of the NOL.

CONCLUSION:

Because under the particular facts of this case the overpayment was attributable to the
Service’s general adjustment to Taxpayer’s TY1 federal income tax liability, and the
overpayment was effectively refunded to Taxpayer, overpayment interest is allowable
under section 6611 from the date of the overpayment to the date of the tentative refund,
subject to administrative adjustments.

FACTS:

Taxpayer timely filed a federal income tax return for TY1 reporting a liability of
Amount 1. Taxpayer paid the liability prior to the due date of the return, which was
Date 1. On Date 2, the Service issued a tentative refund of Amount 2 to Taxpayer for
TY1. This tentative refund resulted from an NOL carryback from TY2. As the amount
requested was paid within 45 days of the taxpayer’s request for a tentative refund, no
overpayment interest was paid in accordance with section 6611(e)(2).

In a subsequent examination, the Service disallowed the entire NOL carryback and
assessed on Date 3 the amount previously refunded. Simultaneously, the Service
made a general adjustment to Taxpayer’s TY1 liability that reduced the liability by
Amount 3, from Amount 1 to Amount 4. Also around the same time, the Service abated
an additional Amount 5 for TY1, evidently resulting from a carryback from TY3. The
combined amount of the general adjustment decrease and the other abatement was
slightly more than the disallowed NOL carryback, an additional Amount 6.

The Service allowed interest on the Amount 3 overpayment for the period of Date 1 (the
filing and payment due date for TY1) to Date 4 (the due date of Taxpayer’s liability for
TY2). Taxpayer’s position is that overpayment interest on Amount 3 is allowable to
Date 2, when the Service issued the tentative refund. The issue of the correct ending
date for computation of overpayment interest is currently before Appeals. Taxpayer
requested Technical Advice on the issue.

LAW AND ANALYSIS:

Section 6611(a) provides that “[i]nterest shall be allowed and paid upon any
overpayment in respect of any internal revenue tax at the overpayment rate established
under section 6621.” Section 6611(b) specifies the period for interest on overpayments.
Specifically, in the case of a refund, subsection (b)(2) provides that interest runs “from
the date of the overpayment to a date (to be determined by the Secretary) preceding the
date of the refund check by not more than 30 days . . . .” The Service administratively
establishes an end date of less than 30 days. See, e.g., IRM 20.2.4.7.1.1(1) (03-01-
TAM-108254-10 3

2002) (instructing that for IMF accounts, overpayment interest stops 13 days before the
refund, while for BMF accounts, interest stops nine days before the refund). When an
overpayment is credited to another tax liability, interest on the overpayment runs from
the overpayment date to the due date of the liability to which the overpayment is
credited. I.R.C. § 6611(b)(1). The due date of the liability credited is the last day fixed
by law or regulations for the payment of the tax (determined without regard to any
extension of time). Treas. Reg. § 301.6611-1(h)(2). In most cases, the payment due
date will be the unextended due date of the return on which the tax is required to be
reported. I.R.C. § 6151(a); Treas. Reg. § 1.6151-1(a). In addition, under section
6611(e)(3), interest on an overpayment that results from a Service-initiated adjustment
is computed by subtracting 45 days from the period for which interest is allowable.

The date of an overpayment is generally the point in time when a payment of tax or an
aggregate of payments first exceeds the liability. Treas. Reg. § 301.6611-1(b) (“the
dates of overpayment of any tax are the date of payment of the first amount which
(when added to previous payments) is in excess of the tax liability” and the dates of any
payments after that); Jones v. Liberty Glass Co., 332 U.S. 524, 531 (1947) (defining
“overpayment” as “meaning any payment in excess of that which is properly due”).
When a payment of tax that results in an overpayment is made before the last day
prescribed for payment, the payment is treated as made (and hence the overpayment
arises) on the payment due date. I.R.C. §§ 6513(a), 6611(d). Additionally, if an
overpayment results from an NOL carryback, the date of the overpayment is deemed
under section 6611(f)(1) to be no earlier than the filing date for the taxable year in which
the NOL is claimed. See also Treas. Reg. § 301.6611-1(e).

Applying these rules to the overpayment at issue, interest is allowable on the Amount 3
overpayment for the period that begins on the date the overpayment arose, which was
Date 1 (the date when Amount 1 is considered to have been paid), to a date not more
than 30 days before the overpayment was refunded to Taxpayer, i.e., nine days before
Date 2. In other words, TY1 was overpaid as of Date 1 and remained so until the
overpayment amount was returned to Taxpayer on Date 2. Accordingly, section
6611(b)(2) prescribes the interest period. In computing overpayment interest for that
period, 45 days must also be subtracted pursuant to section 6611(e)(3).

Because section 6611(b)(2) controls in this instance, the period prescribed in section
6611(b)(1) for interest on an overpayment that is credited to a liability does not apply, as
the overpayment was not credited to a liability. Nor do the rules for determining the
interest period in cases of NOL carrybacks apply. Although the Service tentatively
refunded an overpayment claimed by Taxpayer based on an NOL carryback, there was,
in fact, no such overpayment. The actual overpayment, which is the one in question, is
based on an adjustment to Taxpayer’s liability for the taxable year and is not the result
of an NOL carried back from another tax year.
TAM-108254-10 4

Likewise, the two cases raised in the request for advice--AT&T Corp. & Subsidiaries v.
United States, 62 Fed.Cl. 490 (2004), and Marsh & McLennan Cos. v. United States,
302 F.3d 1369 (Fed. Cir. 2002)--are inapposite because they involved facts and legal
issues different from those dealt with in this Technical Advice Memorandum. The
fundamental difference is that both of the reported cases focused on applying section
6611(b)(1).

More specifically, in the earlier of the two case, Marsh & McLennan, the issue before
the court was whether the taxpayer was entitled to interest on overpayments of income
tax for taxable years 1985 and 1986 running to the date on which each overpayment
was credited to a subsequent taxable year’s liability or, alternatively, to the date on
which the tax was due for the year of the liability credited. In 1994, the Service credited
the 1985 tax overpayment and a portion of the 1986 overpayment to the taxpayer’s
1987 tax liability as of March 15, 1989, which was the date that a credit elect
overpayment for 1987 was applied to tax year 1988 (after the credit election, the
Service determined an underpayment for 1987). The Service computed interest on the
1985 overpayment and the relevant portion of the 1986 overpayment to April 15, 1988,
representing the March 15, 1988, due date of the 1987 tax return, plus, mistakenly, one
additional month. The Service credited the remainder of the 1986 overpayment to
Marsh & McLennan’s 1988 liability as of September 15, 1989, and March 15, 1990, the
dates that a credit elect overpayment for 1988 was applied to 1989. The Service
allowed interest on this portion of the 1986 overpayment up to April 15, 1989, which was
the 1988 return due date, plus one month. Marsh & McLennan contended that the
correct end date for interest on the 1985 and partial 1986 overpayments was March 15,
1989, as that was the date the overpayments were credited, and the correct date for the
second piece of the 1986 overpayment was March 15, 1990, which was the date of the
credit to the 1988 account. The court disagreed and held that section 6611(b)(1) and
section 301.6611-1(h)(2) of the regulations dictate that the closing date for overpayment
interest is the due date for payment of the tax for the year in which the credit was taken.
302 F.3d at 1375-77. Therefore, the taxpayer was only entitled to (and had already
received) overpayment interest to March 15, 1988, and March 15, 1989.

In AT&T, the Service credited a portion of an overpayment from taxable year 1978 to a
deficiency for taxable year 1981 that resulted from an erroneous tentative refund that
was paid on March 25, 1985. The tentative refund was based on a carryback from the
1984 tax year. The overpayment of 1978’s tax also resulted from a carryback from the
1984 year, making the effective date of the 1978 overpayment March 15, 1985, the filing
and payment due date for 1984. Although there was an erroneous tentative refund, the
case did not involve an overpayment for the year of the refund. Correspondingly, the
overpayment year, 1978, did not include a tentative refund and subsequent recapture.
And the issue to be decided was not the duration of the period for interest on an
account that is overpaid from the filing date of the return until the date of an erroneous
refund. Rather, the issue was the interest period, if any, for an overpayment that was
credited to another year’s liability that arose after the due date of the year to which the
TAM-108254-10 5

credit was made. AT&T argued that it should be paid interest on the 1978 overpayment
from the overpayment date (March 15, 1985) to the date of the erroneous refund (March
25, 1985). Relying on Marsh & McLennan and the same statutory and regulatory
provisions, the court held that March 15, 1982, was “the appropriate to-date for
purposes of calculating overpayment interest” because that was the due date for the
year credited. 62 Fed. Cl. at 496. As a consequence of the ending date for interest
being earlier than the start date, AT&T was entitled to zero overpayment interest.

Unlike the present situation, the overpayments for which interest was disputed in each
case were credited pursuant to section 6402(a) to liabilities for other taxable years.
Section 6611(b)(1) and the related paragraphs of the regulations establish the interest
period for an overpayment that is credited against a liability, and they determined the
outcomes of Marsh & McLennan and AT&T. The same rules do not determine the
conclusion reached in this Technical Advice, which addresses an issue different from
the proper ending date for interest allowable on a credited overpayment. Nor, for that
matter, does this advice address any situation other than the precise one described
herein.

A copy of this technical advice memorandum is to be given to the taxpayer. Section
6110(k)(3) provides that it may not be used or cited as precedent.